Can Nebraska Advantage Act credits earned by a corporation be used by its unitary group even if that corporation isn't part of the combined corporate income tax return?

Plain-English summary

Big businesses often operate as a unitary group — several related corporations run as a single economic unit. Under Nebraska's tax rules, though, not every member of a unitary group files on the same combined corporate income tax return: some corporations are carved out. This ruling answers whether Nebraska Advantage Act credits earned by one such carved-out member can still be used by the rest of the group.

The holding: yes. Credits earned by a corporation may be used by the unitary group that includes it, even when that corporation isn't part of the "corporate taxpayer" or isn't allowed on the combined income tax return with the rest of the group.

Why a member might be off the combined return. Nebraska law excludes certain corporations from the "corporate taxpayer" definition or requires them to file separately:

• an S corporation or a financial institution is excluded from "corporate taxpayer" (Neb. Rev. Stat. § 77-2734.04(3));
• an insurance company must use a special apportionment formula and can only be on a return with other insurance companies (Neb. Rev. Stat. § 77-2734.09).

But all members are still the "taxpayer" under the Act. The Advantage Act's definition of "taxpayer" (Neb. Rev. Stat. § 77-5719) reaches any corporation that is a member of the same unitary group subject to the applicable sales/use and withholding taxes. So the incentives are available to the whole taxpayer, and the group is not limited to using them only through the corporation primarily responsible for the project.

How each kind of benefit flows:

• Income tax credits — even if a member isn't on the group's income tax return, the credits its project activities created are available to reduce the tax liability on the rest of the unitary group's return.
• Compensation credits (withholding retention) — allowed, but the withholding must be attributable to new employees at the project.
• Sales and use tax refunds — allowed on qualifying project purchases regardless of which unitary-group member actually bought the item from an unrelated third party (Neb. Rev. Stat. § 77-5726(1)).

What this means for you

Unitary groups with an S corp, financial institution, or insurer earning the credits

Don't assume a project run through a separately-filing member "traps" its credits there. Those income tax credits can offset the combined group's income tax liability, and the group can claim sales/use tax refunds on the project's qualifying purchases no matter which member made the purchase.

Multi-entity businesses planning an Advantage Act project

The entity that holds the agreement doesn't have to be the entity that uses every benefit. Map out, in advance, which member will use the income tax credits, which will retain withholding (watching the new-employees-at-the-project limit), and how purchases across the group feed the sales/use tax refund.

Common questions

Q: A group member earned the credits but files separately. Are the credits lost to the group?
A: No. The credits created by that member's project activities are available to reduce the tax liability on the rest of the unitary group's income tax return.

Q: Does the buyer of project property have to be the agreement-holder to get the sales/use tax refund?
A: No. Refunds for otherwise-qualifying purchases are allowed regardless of which unitary-group member made the purchase from an unrelated third party.

Q: Any special rule for retained withholding (compensation credits)?
A: Yes. The withholding must be attributable to new employees at the project.

Citations and references

• Neb. Rev. Stat. § 77-2734.04(3) -- "corporate taxpayer" excludes any S corporation and any financial institution.
• Neb. Rev. Stat. § 77-2734.04(13), (14) -- define "unitary business" and "unitary group."
• Neb. Rev. Stat. § 77-2734.09 -- a member required or permitted to use a different apportionment formula is included in a return only with corporations using the same formula.
• Neb. Rev. Stat. § 77-5719 -- Advantage Act "taxpayer" includes members of the same unitary group subject to the applicable taxes.
• Neb. Rev. Stat. § 77-5726(1) -- credits may reduce income tax liability and obtain refunds of sales and use taxes on purchases for use at the project.

Source

• Landing page: https://revenue.nebraska.gov/about/legal-information/revenue-rulings-issued-tax-commissioner
• Original PDF: https://revenue.nebraska.gov/sites/revenue.nebraska.gov/files/doc/legal/rulings/rr290507_use_of_credits.pdf

Original ruling text

Revenue Ruling 29-05-7
Economic Development Tax Incentives
December 20, 2005
Economic Development Tax Incentives -- Use of Credits by a Unitary Group. THE CREDITS
EARNED BY A CORPORATION MAY BE USED BY THE UNITARY GROUP THAT
INCLUDES THE CORPORATION EVEN WHEN THE CORPORATION IS NOT A PART OF
THE CORPORATE TAXPAYER.
Advice has been requested as to whether the credits earned under the Nebraska Advantage Act
(Act) by a corporation that is a member of a unitary group can be used by the other members of the
group when the corporation earning the credits is not a member of the corporate taxpayer or is not
allowed to be included on a corporate income tax return with the rest of the unitary group.
A corporation has filed an application for an agreement under the Act. The corporation is a member
of a unitary group of corporations, but under Nebraska law the corporation cannot be included in
the combined income tax return filed by the unitary group.
Section 77-2734.04(3), R.R.S. 2003, provides in part that:
Corporate taxpayer shall not include any corporation that has a valid election under subchapter S
. . . or any financial institution as defined in section 77-3801;
Section 77-2734.04(13), R.R.S. 2003, provides in part that:
Unitary business shall mean a business that is conducted . . . by one or more corporations with
common ownership . . . that contribute to the single economic unit.
Section 77-2734.04(14), R.R.S. 2003, provides that:
Unitary group shall mean the group of corporations that are conducting a unitary business.
Section 77-2734.09, R.R.S. 2003, provides in part that:
Any member of a unitary group that is required or permitted to use an apportionment formula
other than one prescribed by section 77-2734.05 shall be included in a return only with other
corporations using the same apportionment formula. . . .
Section 77-5719, R.S.Supp. 2005, provides in part that:
Taxpayer means any person subject to sales and use taxes . . . and subject to withholding . . .
and any corporation . . . that is . . . a member of the same unitary group that is subject to such
. . . taxes . . . ;
Section 77-5726(1), R.S.Supp. 2005, provides in part that:
The credits may be used . . . to reduce the taxpayer’s income tax liability. . . . The credits may
be used to obtain a refund of sales and use taxes . . . on purchases, including rentals, for use at
the project.

Nebraska Department of Revenue, PO Box 94818, Lincoln, Nebraska 68509-4818

Revenue Ruling 29-05-7

December 20, 2005

Page 2 of 2

A financial institution or an S corporation is excluded from the definition of corporate taxpayer for
corporate income tax purposes. An insurance company is required to use a special apportionment
formula and can only be included on a corporate income tax return with other insurance companies.
All of the other members of the unitary group are included in the term “taxpayer” under the Act.
The incentives under the Act are available to the taxpayer. The unitary group is not limited in its
use of the incentives to just the corporation that is primarily responsible for the project.
Even though a corporation is not included in the income tax return with the rest of the unitary
group, the credits received under the Act which were created by the activities of that member of
the unitary group are available to reduce the tax liability shown on the income tax return of the rest
for the unitary group.
The Act also allows for the use of compensation credits for the retention of withholding by the
taxpayer. However, the withholding must be attributable to new employees at the project.
The Act further allows the use of credits to obtain a refund of sales and use taxes paid on purchases
by the taxpayer that are for use at the project. The refunds for otherwise qualifying purchases will
be allowed regardless of which member of the unitary group actually made the purchase from an
unrelated third-party.
APPROVED:

Mary Jane Egr
State Tax Commissioner
December 20, 2005